A syndicated mortgage is a special type of mortgage that a borrower can avail as per his/her needs. Unlike the regular loans where there is a single lender/investor, syndicated mortgage system allows multiple investors to participate in lending the sum. Including the essential contractual obligation that a borrower has towards the investors, syndicated mortgage has certain features that every individual interested in banking, microfinance, and general affairs must know. Let’s get closer and understand the basic idea and facts about syndicated mortgage system.
- Loan vs. security?
Contrary to common perception, syndicated mortgages are not securities. Because it is a straight investment and does not offer any collateral, the syndicated mortgage is protected by the mortgage contract itself. The contract binds the borrower to the investors, making it mandatory and obligatory for the borrower to pay the due amount in time with interest (as determined by the contract).
- So it a liquid investment, right?
No, it is not a liquid investment. You will not be able to retrieve your money back until the end of the contract due to the lack of any secondary markets for this type of mortgage. The contract binds both the borrower and the investors.
- How are two syndicated mortgages different?
No matter how similar contracts two syndicated mortgages have, they are distinct and unique because different projects and properties are involved. One project may make money for you while the similar-looking another project may sink you down. As an investor, you should be able to understand the project’s prospects and have the expertise to understand the risks as well. A successful return can occur only when you can see the large picture and judge the project’s worth on the basis of the mortgage provider’s profile, project, and the people/parties involved.
- Return on Investment
When you hear that a particular syndicated mortgage project can yield you, say, a 9% or higher return, you should keep in mind that this is only an expected rate of return. More of a prediction based on current market stats and figures, such estimated returns are not guaranteed. Were it a guaranteed deal (like a GIC or a bond), there would have been little risks in the investment and so would have had a little rate of return. So regardless of whether you are an investor or a borrower, it is important that you understand the risks involved in being a party to some syndicated mortgage.
- It’s a fair deal, what risks are involved?
See, every investment is a risk. In fact, all transactions have expressed or hidden risks. When you invest your money in mutual funds or stock markets you are not sure whether you get the better return or not. You keep investing with the hope that funds will increase, and your investment will be successful. Irrespective of your personal conviction (and provider’s endorsements) there is no sure-shot formula to convert your investment into a grandly successful deal. You need to manage the risks by optimizing the factors that contribute to the returns, and thus you can make a profit,
Likewise, syndicated mortgages do not ensure that your money will return with an increment. Though the contract binds the borrower to repay the sum to you (and other investors as well), the minimized risks are still present. Do not make any unrealistic hopes about the project or the loan, that might compel you to make a misinformed decision.
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